For renters hoping to buy a house in the next year or two, it might be helpful to know how you compare with first-time home buyers.
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The U.S. Census Bureau recently released a survey of those buyers and found that they had a median family income of $34,780, a down payment of $5,129, a house valued at $68,000 and monthly housing costs of $744.
Two-thirds of the first-time buyers got a conventional mortgage, which generally requires a down payment of 10 percent. But 34 percent chose a loan backed by the FHA or VA (Federal Housing Administration and the Veterans Administration), which require lower down payments.
The median size of the house bought by first-timers was 1,458 square feet with about 5 1/2 rooms.
What did they get for the money?
– 78 percent: a porch, deck, balcony or patio.
– 36 percent: a fireplace.
– 43 percent: a separate dining room.
– 60 percent: a garage or carport.
What kind of people are they?
– 30 is the median age.
– 35 percent are single or divorced.
– 65 percent are married.
– 45 percent have children under 18.
– 49 percent have two earners in the family.
Most people in their 20s do not own homes but many decide to buy during their 30s. In 1991, the homeownership rate among those aged 25 to 29 was 35 percent-a figure that doubled to 70 percent for those aged 40 to 44.
Although most of the money figures are from 1988 and 1989, Census researchers think they probably have not changed much in the last few years because of the recession and low rate of inflation.
If these figures encourage you to buy a house, start looking around to see what you can afford.
As a general rule, if you’re not bogged down in debt already, think about houses that are 2 to 2 1/2 times your annual household income. For example, with a family income of $35,000, consider houses in the $70,000 to $90,000 range.
Most lenders will allow you to spend up to 28 percent of your gross monthly income on housing costs. To get the gross monthly income, divide your annual pay by 12. That’s what you receive before any taxes or other expenses are taken out. Multiply the gross income by 0.28 and you’ll have a good idea of how much you can pay each month.
For instance, with an annual income of $35,000, the monthly gross is $2,916 and 28 percent of that is $816.
If you find a house priced at $87,500 and have a down payment of 10 percent ($8,750), you probably can find a fixed-rate mortgage for 7.5 percent. The mortgage will be $550 a month for principal and interest. Add real estate taxes and homeowner’s insurance for both yourself and the lender, which should not be more than $250 a month. Because that adds up to $800, it means you can afford an $87,500 house and if real estate taxes are low in your area you can afford even more.
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Lenders generally also have a rule that your housing costs and all your other monthly debts-car payments, child care, credit cards-cannot exceed 36 percent of your monthly gross income. So it’s a good idea to pay off as much debt as you can before buying a house.
If you don’t have enough money to make a 10 percent down payment, look into FHA-backed mortgages, which generally require down payments of only around 5 percent. VA-backed mortgages are available without a down payment, but you must have served in the armed services to get one.
Don’t despair if the median housing price in your area is high, say $150,000. That simply means that half the houses cost more and half less. You’ll be looking on the “less” side for now, but take heart-the Census Bureau found that homeowners who recently moved up to another house had down payments averaging $22,000, much of it from the sale of their previous home.